Alligator indicator: Forex indicator, indicator forex, best forex indicator

"Alligator" indicator for Forex was elaborated by the author of "Trading chaos" and "New dimensions in stock trading" books Bill Williams. He devised a trading system to predict Forex price action on the basis of several indicators including Alligator as one of the best Forex indicators.

"Alligator" Forex indicator represents three simple moving averages with different periods and forward shifting. The main function of this Forex indicator is to send a trend's signal in its very beginning. The indicator's feature is reliance on Median Price instead of Close price (as in the case with a common simple moving average). Median Price is an arithmetical average of maximum and minimum price of bar (candle):

where:
High — maximum of this bar;
Low  — minimum of this bar;

Formula of moving averages of “Alligator” indicator

The first moving average is calculated according to the formula, which is the same for a simple moving average, whereas the difference is that median prices are summed. The second and third moving averages are calculated as per the below formula:

 

Description of the "Alligator" indicator

The first MA with time period of 13 and shift for 8 bars' forward is called Alligator's Jaw, is traditionally painted dark blue on the chart. The second MA - Alligator's teeth – has a period of 8 and shift equal to 5, is usually red. The third MA - Alligator's Lips – has period of 5 and shift equal to 3. This is a green-colored line (watch pic. 1)

Alligators Jaw = Smma (Median Price, 13, 8)

Alligators teeth = Smma (Median Price, 8, 5)

Alligators Lips = Smma (Median Price, 5, 3)

Pic. 1 “Alligator” indicator by Bill Williams

All lines of Alligator show levels of price settling on the market on condition that new factors for different time periods won't impact. Bill Williams called indicator's line as “balance lines” and interpreted their position as follows:

- When all lines are entwined, Alligator is sleeping and market is under flat, there are no signals for buying and selling (watch pic. 2);

- The longer Alligator sleeps, the hungrier it gets (watch pic. 2);

- When chaps of Alligator is opened and prices are above its jaw, trend is ascending (watch pic. 3);

- When chaps of Alligator is opened and prices are above its lips, trend is descending (watch pic. 3);

- Entwinement of balance lines after “hunting” is considered to be the moment of profit taking, that is to say, closure of positions.

Picture 2 “Alligator” indicator under flat

Picture 3 - “Alligator” indicator during trend